Capital Gains Tax relief – What is in the Finance Bill 2015?

Budget 2016 was widely praised for the measures which support enterprise and our business community. The reduction in the marginal tax rate, the introduction of a tax credit on earned income for the self employed and reductions in USC all gave welcomed hope for the future to many across the business community. One area that also received praise was the Minister’s announcement of a reduced Capital Gains Tax rate to assist and reward entrepreneurs. The detail, as always, lies in the Finance Bill so the question is, just how much will this CGT relief benefit Irish business?

The announcement of a reduced CGT rate of 20% to apply to the disposal in whole or in part of a business up to an overall limit of €1 million in chargeable gains was welcomed here in Chambers Ireland. It reflected our pre-budget submission and something we have been advocating for over a number of years. The new rate of 20% for non-passive investment brings Ireland closer in line with the UK, but we felt that there was justifiable criticism that this was limited to the first €1million. While the threshold is too low, we see this as a step in the right direction.

However, the detail in the Finance Bill has come under wider criticism as it appears the benefit will not be as widely accessible as initially thought. The limitations are that: the beneficiaries of CGT relief must be company directors, and the director must have more than 15% of the company’s equity. Commentators have raised the concern that this may discourage companies from raising the cash they need to build their business because the dilutive impact of any new funding may have on their holdings. Another worry is that many companies, particularly start-ups, have more than one founder but it is unusual to have more than one or sometimes two founder directors on a board. Therefore, the limitations in the Finance Bill could pit founders against each other in terms of forming or restructuring boards.

It would appear that despite the initial praise for this measure, the detail in Sections 33-39 of the Finance Bill will ensure that this relief is limited to a smaller amount of people than originally anticipated.